Czech crown firms to 2-wk high as risky bets pared

...market woes led investors to buy back central Europe's safe-haven currency.

The crown inched 0.1 percent higher from the previous close to 27.940 per euro by 0630 GMT. It has gained 3 percent since the start of July when problems in risky U.S. credit markets caused investors to fret over high-yield bets.

"Within the region (of Europe, Middle East and Africa) the crown remains the best hedge against uncertainty," said Nigel Rendell at bank Calyon. "The (euro/crown) cross rate has the potential to run all the way back to the 27.60 area seen earlier in the year," he added in a report to investors.

With the lowest official interest rates in the European Union at 3 percent, the crown has this year become a popular source of funds for investors to fund such relatively risky investments in high-yield markets via so-called carry trades.

However, equity market falls and a spike in risk aversion caused by global credit market concerns have prompted investors to chop carry trades, sending the low-yield funding currencies such as the crown and Japan's yen higher.

The yen hit a 4-1/2-month high against the dollar and rose more than 1 percent against the euro on Wednesday [USD/].

The crown's strength, coupled with softer-than-expected inflation data as well as weaker industrial sector expansion, could make Czech central bank (CNB) policymakers think twice about raising interest rates at their Aug. 30 meeting, analysts said.

"What is notable is that most data this month has been on a softer side and with the crown trading strongly in the global risk aversion environment, the CNB may be taking a slower pace to its hiking cycle," said Silja Sepping at Lehman Brothers.

She still forecast one more rate rise this year to 3.25 percent.

In July, the CNB raised the policy rate by quarter of a percentage point to 3 percent , its highest in nearly five years, in the second such move this year.

[PRAGUE/Reuters/Finance.cz]